United States: E.D.N.Y. Exonerates Debt Collector For Using Safe Harbor Language, Considers Sanctions Against Plaintiff's Counsel For Bringing Meritless Claim

Last Updated: April 27 2018
Article by Reiss F. Wilks and Ethan G. Ostroff

On March 30, the U.S. District Court for the Eastern District of New York dismissed a Fair Debt Collection Practices Act case in favor of a debt collector, finding that the use of the Miller safe harbor language in its collection letter did not violate the FDCPA. In granting the debt collector's motion, the Court made clear that the language complained of by the plaintiff was the very language that the Second Circuit previously identified as a "safe harbor" provision and thereby shielded the debt collector from any liability. However, the Court did order the plaintiff's counsel to show cause why he should not be sanctioned under Rule 11.

In Timoshenko v. Mullooly, Jeffrey, Rooney & Flynn, LLP, the debt collection firm of Mullooly, Jeffrey & Flynn sent a collection letter to Oksana Timoshenko including the following language:

"As of the date your balance is $2,435.48. Because of the interest and fees that may vary from day to day, the amount due on the day you pay may be greater. Hence if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, please write or call G Brickman – (516) 656-5339."

Timoshenko alleged that this language was false, misleading, and deceptive because it could reasonably be read to have two or more meanings concerning the actual balance. Specifically, she claimed the letter is unclear because it fails to reference whether interest and fees were already included in the balance due or whether they will be incurred in the future. Timoshenko further alleged that Mullooly purposefully omitted this information as a means to induce her into making payments that she would not have otherwise made if she had this information.

After Timoshenko filed her class action complaint, counsel for the law firm contacted Timoshenko's counsel and informed him the language in question was copied verbatim from the safe harbor language cited in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols & Clark, which was endorsed by the Second Circuit in Avila. Defense counsel further informed Timoshenko's counsel that the two cases she relied upon – namely Carlin v. Davidson Fink LLP and Balke v. Alliance One Receivables Management – did not involve collection letters containing the safe harbor language. Timoshenko was then asked to voluntarily dismiss her action, and Timoshenko's counsel responded with an email rejecting the request to dismiss the claim. Therefore, the debt collector simultaneously filed its answer and moved the Court under Rule 12(c) for judgment on the pleadings and its attorneys' fees against both Timoshenko and her counsel pursuant to 15 U.S.C. Sec. 1692k(a)(3).

Timoshenko's narrow argument asserted that the language in the letter was deceptive and did not qualify under the Miller safe harbor because it failed to state that the amount of the debt "will" increase, but instead it "may" increase. The Court found this argument unconvincing because the Avila holding did not require a debt collector use any one particular disclaimer. The Court further found that the collector's language was identical to the language from Miller and therefore qualified as a safe harbor.

The Court also found the references to Carlin and Balke inapposite to this case. The Balke holding never even discussed the Miller language. Further, the Carlin holding only mentioned the safe harbor language to show the letter did not qualify. In Carlin, the Court held that the defendant debt collector's statement was incomplete because it omitted information allowing the least sophisticated consumer to determine the minimum amount owed, the amount needed to be paid to resolve the debt, and an explanation of whether interest and fees would increase the balance. Here, Timoshenko claimed that a collection letter is deceptive unless it provides that same information as stated in the Carlin holding. The Court said Timoshenko's conclusion was at odds with the holding in Avila – where the Court indicated that it "may be preferable" for a debt collector to "advise [] the consumer of the specific rate of increase of debt over time," but did not go so far to require a specific disclosure. Therefore, the Court granted the debt collector's motion to dismiss.

In determining the issue of sanctions, the Court found no bad faith on the part of Timoshenko. Instead, the actions leading to the filing of an answer and Rule 12(c) motion were precipitated by Timoshenko's counsel. According to the Court, it was evident that Timoshenko's counsel was well aware Plaintiff's claim was patently frivolous. Once informed by opposing counsel of the defects of the claim, Timoshenko's counsel should have advised their client to voluntarily dismiss her claim. Instead, counsel responded with the same frivolous argument that the letter was deceptive. Instead, he responded with the same frivolous argument that the letter was deceptive. The Court ordered Timoshenko's counsel to show cause why he should not be sanctioned under Rule 11 and why he should not be liable to pay the defendant's attorneys' fees and costs. A hearing on the show cause is currently scheduled for May 4.

The Court voiced its frustration by stating the following:

"A great virtue of judicially designed or endorsed safe harbors is that they provide certainty – for economic actors, for prospective litigants and for courts. This certainty redounds to the benefit of the public in many ways, not least through the deterrence of frivolous lawsuits and the concomitant conservation of judicial resources. Lawsuits such as this frustrate these goals, wasting courts' time and draining blameless defendants of money that could be spent elsewhere."

This case clearly represents the Court's concern for the meritless nature of the flurry of "current account balance" lawsuits presently pending. The Court also appeared to be annoyed by a plaintiffs' bar that seems to ignore those safeguards put in place by prior rulings, in an apparent effort to either extrapolate quick settlements from debt collectors simply trying to comply with the law, or require those defendants to expend time and money to defend worthless claims.

The Troutman Sanders' Consumer Financial Services Law Monitor blog offers timely updates regarding the financial services industry to inform you of recent changes in the law, upcoming regulatory deadlines and significant judicial opinions that may impact your business. To view the blog, click here

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Reiss F. Wilks
Ethan G. Ostroff
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